11 March 2021

Classified intelligence information cannot be used against an exporter without granting the right to be heard

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  • Trade / Logistics

In June 2020, the SECO suspected the Zurich-based company Galika Ltd. of concealing exports that would serve Russia's armaments.

1. Introduction

In June 2020, the State Secretariat for Economic Affairs ("<strong>SECO</strong>") suspected the Zurich-based company Galika Ltd. of concealing exports that would serve Russia's armaments. The Swiss authorities committed several procedural errors in the process. The decision of the Federal Administrative Court ("<strong>FAC</strong>") of January 11, 2021 (B-4161/2020) is summarised below.

2. Facts of the Case

The activity of Galika Ltd. (hereinafter referred to as "<strong>Galika</strong>") consists in the overall engineering of industrial facilities and the handling of commercial transactions. Between February 17 and March 19, 2020, Galika submitted two export applications to the SECO for tools for the manufacture of medical devices and one application for the export of a processing centre for the manufacture of technological equipment to Russia.

The SECO then informed Galika that the examination of the first application had revealed inconsistencies and that there was reason to believe that the Russian recipient had deliberately provided false information in his documents. The SECO therefore requested Galika to substantiate and prove the end-use of the export. Galika then submitted to the SECO precise drawings of the parts to be manufactured, stating that the equipment would be used for oncological treatment. The production hall was also equipped exclusively for the manufacture of medical equipment parts. The background to this was that the Russian Federation financed selected companies for the development and production of these devices. The SECO took a critical view of this circumstance, since the final recipient also had an arms production facility, and submitted the case to the Federal Intelligence Service ("FIS").

After reassessing the facts, the FIS concluded that the final recipient in Russia was involved in the production of the key sensor for Russia's most important fighter aircraft project as well as the production of other weapons systems. In contrast, the activities in the medical field were only a niche position. Accordingly, the FIS judged Galika's applications to be an attempt to deliberately mislead the export control authorities. After obtaining further opinions from the FDFA, DDPS and DETEC, the SECO rejected the three export applications in an order dated June 17, 2020, based on the assumption that the documents submitted by the final recipient would conceal the actual military end-use of the export goods. After an unsuccessful appeal, Galika filed a complaint with the FAC on August 20, 2020, disputing that the machine tools it had supplied were intended for military purposes.

3. Legal Matters

3.1 Basics

A licence from the SECO is required for the export of goods defined in the Goods Control Act. The granting of a licence may be refused if the activity applied for contradicts international agreements or control regimes. The export of goods that can be used for civilian and military purposes in connection with the situation in Ukraine may also be refused if the goods are intended in whole or in part for military purposes or for a military end-user.

3.2 Considerations of the Federal Administrative Court

3.2.1 Violation of the applicant’s procedural rights

From a formal point of view, Galika complained to the FAC that the right to be heard (art. 29 para. 2 Federal Constitution) and the right to inspect files (art. 26 Administrative Procedure Act) had been violated because the SECO had not informed her that a risk report that was decisive for the assessment of the facts had been put into the files. Likewise, she had not been informed of the assessments of the FIS and the other departments consulted. From the right to be heard follows the duty of the authority to provide information (in advance) on the bases relevant to the decision. This duty to provide information is limited by the parties' duty to act in good faith (art. 5 para. 3 Federal Constitution).

With regard to the risk report, the FAC found that Galika should have expected it to be used in the decision-making process. It should also have been aware of the file, which is why the SECO had been allowed to withhold the information. However, the statements of the FIS were classified documents. Their inspection may be refused or restricted (art. 27 Administrative Procedure Act). However, it may only be used to the disadvantage of the party if the authority has informed it of its essential content and has also given it the opportunity to make a statement and designate counter-evidence (art. 28 Administrative Procedure Act). With the information provided by the SECO, Galika was, in the opinion of the FAC, informed – although briefly – of the essential content of the FIS analysis of the first two applications. With regard to the third application, however, the applicant had not been sufficiently informed about the FIS analysis, especially since the FIS came to a negative assessment based on numerous individual indications. The SECO thus violated Galika's right to be heard.

3.2.2 Inadequate clarification of the facts by the SECO

In cases of export licence applications, the SECO must determine the legally relevant facts correctly and completely ex officio (art. 12 Administrative Procedure Act). Moreover, the right to examination of the parties' submissions requires that the authority actually hears the submissions of the parties concerned, examines them carefully and seriously and takes them into account in reaching its decision (art. 32 Administrative Procedure Act). The FAC concluded that the SECO had not fully clarified the facts of the case and, in particular, had violated Galika's right to be heard in the third application by neither thoroughly examining the drawings of the parts to be manufactured submitted by Galika nor forwarding them to the other competent bodies, in particular the FIS.

3.3 Judgement

The FAC therefore partially upheld the appeal on the grounds of violation of procedural rights, annulled the contested order and referred it back to the SECO for a new decision. At the same time, it requested the SECO to carry out additional clarifications on the final recipients and the final destination of the goods applied for export.

4. Conclusion

If the SECO relies on classified intelligence information to the disadvantage of an exporter, inspection of these documents may be refused or restricted. However, this does not exempt the SECO from informing the exporter of the essential content of the information relevant to the decision and from giving the exporter the opportunity to comment on this information and to designate counterevidence.

The MME Trade Compliance and Export Control Team supports you in risk assessments and in implementing suitable measures to ensure compliance with Swiss and international regulations.